California Governor Calls for 10,000 Fewer Jobs, Spending Cuts
Gavin Newsom, governor of California, speaks during a news conference in Los Angeles, California, US, on Wednesday, Jan. 3, 2024. The University of California is paying $700 million for a former Los Angeles shopping mall that had been redeveloped as offices for Alphabet Inc.’s Google, with the school system planning to convert the campus to a medical and engineering research park.
(Bloomberg) — California Governor Gavin Newsom’s latest budget proposal looks to slash 10,000 unfilled jobs from the state’s roster and cut tens of billions of dollars in spending to close a gaping deficit left by inflation and a plunge in tax revenue from wealthy earners.
Newsom, a second-term Democrat, in January had proposed a $208.7 billion plan that shrunk the state’s general-fund budget nearly 10% from the current fiscal year in order to fill what was estimated at the time as a $38 billion deficit. But his updated spending plan released Friday — based on the latest revenue figures in what is known as the May Revision — proposes even deeper cuts with the state’s general fund plummeting to $201 billion for the upcoming fiscal year that begins July 1.
In total, the governor is offering to cut $32.8 billion, including a nearly 8% cut to state operations. A fact sheet provided by Newsom’s office said the proposal will make the state “more efficient, leaner, and modern.” The governor’s office touted the plan for not raising taxes and preserving spending for key social service programs.
Through the end of March, the state had collected 4% less in tax revenue for the current fiscal year — amounting to about $5.8 billion — than what Newsom had projected just four months ago, according to figures from his Finance Department. Those bleak numbers prompted Newsom and the state’s Democrat-controlled Legislature last month to agree to $17.3 billion in actions to reduce the shortfall, including $3.6 billion in cuts, $5.2 billion in borrowing, and other accounting measures that delay spending to subsequent years or shift costs to other state funds.
His January plan called for drawing $13.1 billion from the state’s reserves to close the gap and cut $8.5 billion in spending from key priorities including climate change initiatives, housing and a scholarship program. He also proposed a series of accounting maneuvers such as pushing $1.6 billion for the last payroll for state workers to be paid next year into the following fiscal year. In December he froze state spending.
The governor has also said he will seek to change recently passed legislation setting a $25 minimum wage for health care workers by 2026. Newsom wants to make the wage hikes contingent on funding, which could delay the increases and save the state money in the near term. He’s also suggested lifting limits on the amount of money California can deposit annually in its budget reserves. Caps on how much the state could set aside has impeded the state’s ability to make additional deposits that would have created even greater budget resiliency during California’s recent revenue surpluses, Newsom has said.
In February, the state’s non-partisan Legislative Analysts Office said Newsom’s January calculations were overly optimistic as new data showed that tax receipts fell short of earlier estimates. With a progressive tax system that takes in less revenue when the income of the highest earners declines, California saw its outlook weaken after a 2022 slump in the stock and bond markets. The top 1% of earners pay nearly half of personal income-tax collections.
The deficit calculations were clouded by a rare delay in the tax filing deadline that concealed the size of the hole until late last year.
Lawmakers now have until the state constitutional deadline of June 15 to pass a budget and send it back to Newsom. If they don’t they forfeit their salaries and travel and living expense reimbursements until the day that the budget is signed into law.
–With assistance from Andrew Oxford.
More stories like this are available on bloomberg.com
©2024 Bloomberg L.P.